Why were we involved?
Good question!
It's not that the client was new to business, in fact, they previously owned and operated a very successful business which they sold several years ago.
Like so many entrepreneurs who are very good, even exceptional at doing what they do, a KEY to SUCCESS is knowing when to bring in additional help!
Know your strengths and your areas of weakness. Your customers come to you and use your services, and purchase your products because they know they can count on you to deliver every day. The fact is - writing a business plan just isn't one of those daily things that the owner has on their regular 'to do' list! But it is an area where we can help!
There are many reasons for having a business plan. Start-up is one of them, but for the entrepreneur who's thinking long-term, having a business plan can become even more important. As we've seen over the years, one of the biggest reasons for having a business plan is that it can help you maximize the value you receive when you retire, or move on to your next venture!
Now, here are some great suggestions to help you when it comes time to preparing for your business exit strategy! Thank you to our friends from Sunbelt Business Brokers in Edmonton.
Minimizing Taxes When You Sell Your Business
ALTHOUGH
our one-cent coin has been retired, the premise "a penny
saved is a penny earned" still holds true for those in business. We don’t
want to pay out any more than we have to in taxes.
To
capitalize on the best tax strategies when selling your business, an owner
needs the professional guidance of accountants, lawyers and financial advisers.
At
Sunbelt, we advise Sellers to drawn on such expertise
regarding two main tax structures in the sale of a business:
1) the shares of a corporation and
2) the assets of the business.
Sellers
who own the Shares in their corporation can receive some or all of the proceeds
of the sale of their business tax-free - if they meet the criteria of the Lifetime
Capital Gain Exemption.
Asset
Sales are often preferred by a business Buyer. Here the assets are recorded at
fair market value and amortized over time, accelerating the Buyer’s tax
savings. Asset sales also avoid most of the legal and tax liability that the
business might face in the future.
Hybrid
tax strategies are more complex and involve negotiating the sale of a
combination of assets and shares. Today we will simply be looking at Share and
Asset Sale approaches.
Tax
considerations, type of business and lead times can affect the type of Sale.
Timing on the close of the sale of your business can also be a significant
factor as you will see below.
Share
sale
The
difference between the cost of the shares and the sale proceeds is a capital
gain. By taking advantage of the Lifetime Capital Gain Exemption in 2016 of up
to $ 824,176, share owners can receive the
capital gain tax-free, if they meet the criteria.
Advance
planning is usually required to ensure:
A. Shares
are of a Canadian-controlled small business corporation;
B. Shareholder(s)
have owned the shares during the 24 months preceding the sale;
C. Substantially
all (at least 90%) of the company’s assets are used in an active business in Canada at the time of sale;
D. A
minimum of 50% of the company’s assets have been used in active business in
the prior 24 months.
Potentially
significant tax could be saved by removing any excess cash, portfolio
investments and investment properties not being used in the active business.
Many of our clients have achieved this through insurance vehicles.
Another
option is to multiply the capital gain exemption by having your spouse and/or
children own shares (through a trust), so each can use their
lifetime capital gain exemption. This can
be set up through an estate freeze two years prior to the sale of the business.
We highly recommend working with your accountant and a tax lawyer as part of
your exit planning team.
Negotiating
the structure of the purchase can be difficult as the Buyer and Seller have
conflicting goals. Sellers want to sell shares for tax-free capital gains; Buyers
want to buy assets to get the stepped-up asset values and to avoid liabilities
for past business activities. The purchase price is often discounted in a
shares sale because the Buyer is losing the tax shield against future earnings.
If you
own shares of a small business corporation, set an annual review with your
accountant and tax lawyer to continue meeting capital gain exemption
requirements. Keep in mind that as shares are deemed to be sold at fair market
value on death, appropriate planning may avoid placing a tax burden on your
estate.
Asset
sale
The
remaining value relates to goodwill, also amortized over time. When the Seller
receives proceeds in excess of the "tax cost" (UCC) of the asset, tax
will be due. The proceeds need to be allocated to the various assets being
sold; some may need to be appraised.
The Buyer
may agree to buy some of the assets at the end of December and some at the
start of January, splitting the taxable income and capital gains between two
years, helping to minimize taxes for the vendor. Your accountant and tax lawyer
can help you determine if this is of advantage.
The
existence of significant eligible capital property (goodwill) can benefit both
the Seller and the Buyer in an asset sale. The Buyer, who can amortize the
goodwill, will generally be willing to pay more for assets to offset increased
tax costs to the Seller.
The Seller
may enjoy a small tax savings or a small tax cost and a significant tax
deferral or a moderate tax deferral depending on whether or not the sale of
eligible capital results in income eligible for the small business deduction.
Planning
- three-to-five years ahead - is the best way to maximize the after-tax dollars
on your sale.
A
Sunbelt Business Broker can work to help you optimize your tax position in
structuring the sale, setting the transition requirements, and helping both
parties negotiate a favourable financing strategy.
The
Sale of your business can be a fairly complex transaction, and your Sunbelt
business broker is there to help facilitate the process for the Buyer and the
Seller’s mutual tax advantage, where possible.
Sunbelt Business Brokers Edmonton
Sunbelt’s team of brokers, operating at local and regional levels, have experience selling small to medium sized businesses.
 |
| Michael McCulloch |
 |
| Dale Alton |
Sunbelt is the world’s
largest business brokerage firm with approximately 300 licensed offices located throughout the world,
and 33 offices across
Canada alone.
More than 1,400 Sunbelt brokers annually coordinate an estimated 4,000 Main Street and Middle Market business transactions.
A variety of strategies are required to sell businesses from different industries, of different sizes, and in different economic climates. Many Sunbelt brokers have specific industry experience and cooperate with their counterparts to identify the buyer and create the right framework for the sale.
Your Local Sunbelt Business brokers sell a diverse mix of main street businesses valued under $3 Million. Mergers and Acquisitions of larger and more complex business transactions of up to $30 Million are managed out of the Ottawa Head Office. We would like to help you plan and look forward to retirement, expansion or an exciting new business opportunity.
Have you ever thought about selling your Business?
Sunbelt represents clients who may be interested in buying a business like yours. If you are thinking of selling a business now or in the next 3 years, discover what your next steps should be. Feel free to contact our Sunbelt Business Brokers Edmonton office if you have any questions or would like a free confidential consultation. Give me a call. Dale Alton – 780-878-8787
Sunbelt - The Place to Buy or Sell a Business.
* Thank you once again Michael and Dale for providing us with the valuable insights provided in this article!
Over the years, we've enjoyed assisting entrepreneurs who are based in a number of different locations. Technology has allowed us to extend our reach and work closely with those who are even further afield! Our Business Coaching and Mentoring assistance can be tailored to meet your needs. Here are some of the many comments that business owners have provided regarding the help they received from us with their business development plans:
· This will help focus my attention, instead of being scatteredHaving a business plan can help ensure that you're heading in the right direction with your business, and that you have the necessary resources to get you safely to your intended destination!
· It will get me more organized, streamlined, and keep me on track
· I’m able to really evaluate the risks associated with moving forward
· I’ll be better prepared for what to expect as I grow my business
· It reinforces the need to have a well thought-out business plan
In closing, we invite you to consider Pro-Vision Solutions Inc. as a part of your TEAM of business professionals. We're pleased to assist you with your business planning, through start-up, growth and expansion. Let us know if you would like to have a conversation!
NOTE: For more information on the services provided by Pro-Vision Solutions Inc. and how we can assist ... please visit our Website: www.pvs4u.ca
